Why might you consider an ‘offset’?
With interest rates unlikely to rise soon, instant access savings accounts will continue to pay poor rates of interest. Borrowers can make their savings work harder by offsetting them against their mortgage, thereby reducing the interest they pay. Offset mortgage borrowers can choose to reduce their monthly mortgage payments or keep their payments the same and reduce the length of the mortgage term, while retaining easy access to their savings in case of emergency.

What is an ‘offset’ exactly?
An offset mortgage is linked to one or more bank accounts. Mortgage lenders calculate the interest owed based on the total amount borrowed. With an offset mortgage, the total amount is reduced by the savings held in the linked accounts.  Most offset mortgages will allow you to link it to a bank or savings account. Some clients prefer their savings to be kept away from their normal bank account and this can usually be done.

As an example, say you borrow £500,000 and have savings of £100,000 in a linked deposit account. You will only pay interest on £400,000. As your savings fluctuate over time, so will the total mortgage amount on which interest is charged.

Easy access to your money in case you need it, acting much like an instant access account.
You pay less in mortgage interest, so an offset mortgage can help you pay off your mortgage earlier.

If you don’t have a significant amount of savings, you will not save much on the mortgage by offsetting, so you might be better off with a different mortgage deal with a lower interest rate

Who is right for an offset mortgage?
Offset mortgages are suitable for people who have substantial savings. Those savings will not earn you interest if you offset them, but they will save you paying interest at the mortgage rate, which is generally higher than the savings rate after tax. So for higher-rate taxpayers, offsetting against a mortgage can prove particularly efficient. Offset mortgages can also allow parents to help reduce the total mortgage payable by their children, by keeping some of their savings in an offset account.

Offset mortgages are particularly appealing for self-employed clients who often save their tax throughout the year and then pay their tax bill in January. With an offset mortgage the tax they are saving throughout the year can be used to offset their mortgage, thereby reducing their monthly mortgage payments or term of the mortgage.

Read about how an offset worked for one of our clients.

Private Finance

• Established in 1999 Private Finance has successfully negotiated billions of pounds of mortgages. It is an independent mortgage broker whose mission is to exceed your expectations, working on your behalf to procure competitive terms and a suitable solution, quickly and efficiently.
• Private Finance is not limited in the range of mortgages it will consider for clients. It is well respected by mainstream institutions and private banks, with which it has a reputation for introducing high quality clients. Its mortgage brokers are qualified professionals who understand and empathise with the needs of discerning individuals.
• You can be assured that your mortgage will be competitively priced and well suited to your needs.
• As a client of Private Finance your mortgage arrangements will be handled on a day to day basis by your dedicated broker. You will not have to deal with call centres or spend time providing personal information via online forms.
• You are therefore free to get on with your life in the knowledge that your mortgage application is being managed proactively in order to meet important deadlines.
• Our brokers take pride in helping clients fulfil their property aspirations and can often turn the seemingly impossible into reality! You may be able to look at a wider range of property than you previously expected and overcome obstacles which might have stood in the way of progress.

Email info@privatefinance.co.uk or call 0800 980 8777.


Share this article: